Last week, the gaming industry was rocked by two big announcements: the massive 50% Xbox Game Pass price hike and the leveraged buyout of EA for $55 billion from a Consortium of investors. With both likely to influence the industry in their own ways, we have contacted MIDiA Research Games Analyst Brandon Sutton to get his opinion on what will happen to Electronic Arts and the Xbox brand.
Brandon, what’s your take on both news?
While the debt burden is notable, Saudi Arabia and its partners purchasing EA makes sense on several levels. Financially, EA owns some of the most profitable gaming franchises with proven monetization models. Culturally, its partnerships with leading sports and entertainment brands give it a rare connection with global audiences that its new owners can leverage. Technologically, video game development offers a powerful testing ground for emerging tools like generative AI. This creates a natural compatibility for investors who are already invested in that space as well.
The increase in Xbox Game Pass prices are part of a wider pattern of rising costs across the industry. Inflation and rising costs of operation are certainly factors, but so is the growing consolidation of the market. This has emboldened major industry players to increase prices. The risk, however, is that consumers will still see gaming as a luxury and steep increases from larger companies could ultimately push them toward cheaper, indie alternatives
Do you think EA will soon implement layoffs or even studio divestitures to reduce costs, and if so, is BioWare the main candidate?
Prior to the acquisition news, EA was already enacting layoffs, with Respawn being hit especially hard earlier this year, so the acquisition could slow some of that down. However, new ownership will likely be taking stock of where workers and teams can be cut, perhaps replaced with generative AI, in order to trim costs once the deal is finalized. Post-acquisition, it wouldn’t be surprising to see studio divestitures or the sale of IP to recoup costs. BioWare is certainly a strong candidate, given the recent underperformance of Dragon Age: Veilguard.
Is there a risk that Microsoft will alienate some of its oldest Xbox fans with such a steep increase in Game Pass pricing and the fact that they have walked back on some promises? For instance, they have now removed Call of Duty from the Premium tier, so only the Ultimate tier will get access to the popular game.
I think the move will alienate many longtime Xbox fans. However, Microsoft is likely calculating that an increase in negative sentiment will not translate into a meaningful amount of canceled subscriptions. That said, consumers are feeling a financial crunch right now and so rising prices combined with a sense of broken trust will likely have lasting consequences for the wider Xbox brand and Microsoft ecosystem even if Game Pass subscription revenue remains strong.
Thank you for your time.